Bray-Doyle embezzlement subject of report

“You are either incompetent at doing your job or responsible for this scam, so which are you?” was the question posed by independent auditor Jack Jenkins to former Bray-Doyle encumbrance clerk Kimberly Brown during a phone interview in Sept. 2011.
Last month, Brown pled guilty to 14 counts of embezzlement, and Jenkins calculated over $297,000 was stolen from the rural school district.
Brown will serve 5 years of a 30-year sentence in prison and was ordered to pay a $250 fine for each count totaling $3,500. When she is released from department of corrections custody, she will have to make restitution to the school district.
Jenkins’ report was the topic of a special board meeting held on Oct. 22. Much of the report deals with former superintendent Kevin McKinley and Brown.
The issue of the missing funds came to light in June 2011 when, then new superintendent, David Eads used Jenkins’ firm to assist with preparation of the school’s Estimate of Needs for the upcoming school year.
“Around this time of these meetings, some peculiar transactions were discovered,” the report reads.
Jenkins was asked to review the transactions to see if it was an isolated incident or if the discrepancy occurred more than once.
Christmas savings account
The district set up a Christmas savings account at Legacy Bank into which staff members could contribute money through payroll deductions. The money would be pooled and the contribution, along with interest generated, would be dispersed in December.
The only two authorized signers were McKinley and Brown though McKinley said he did not recall being an authorized signer, according to the report.
During a Nov. 2011 interview, Jenkins asked McKinley about a $34,000 payment into the account in Dec. 2006. McKinley replied, “he was not aware of this transaction or any other deposit that was related to the payroll deductions,” according to the report.
During the interview “Mr. McKinley stated that Kim Brown was responsible for reviewing the monthly bank statements for this account and he never saw one single bank statement related to this account during this period.”
The report scolded the district for having the account in the first place.
“A school district has no business operating a ‘consolidated’ savings plan,” the report states. “Since the interest earnings were calculated by an employee of the district on a non-profit or governmental account, Legacy Bank would have no way of knowing how much interest should be applied to each participating employee and reported on a 1099-int as required.”
While obtaining the auditor’s report, Eads said the account was illegally set up, the school board did not approve it and no board member was an authorized signer on the account.
Altered checks
The auditor had problems locating purchase orders for several transactions. During an on-site visit to verify documentation, of 44 transaction requested, the auditor was able to find only one purchase order.
“I found three (3) different methods used to avoid disclosing these payments to the board,” Jenkins said in the report.
The first was to skip over payments between meetings. For example, the December 2008 meeting completely skipped payment numbers 650 and 651.
“(They) were never voided, but also never cleared the bank,” the report says.
The second method was to “white out” the amount and replace it with a “.00.”
“For example,” Jenkins says, “Wilcher Electric payment number 690 on the Dec. 2007 payment register was reflected on the board approved payment register as a zero. Upon further inspection, you are able to see that the zero amount has been typed in the place and it is a little crooked. The $7,756 amount of the payment was then added to a direct deposit manual transfer.”
The third method to deceive the board was to “white out” part of the payment. The report cites a check of $3,021.88 to Walmart on Sept. 13, 2010.
“When you observe the board approved payment registers, you can see that the ‘3,0’ has been erased using white out and the amount shown is $21.88,” the report states. “If you look really close to the original document, you can see some specks where the white out job was not done to perfection.”
Brown interview
On Sept. 16, 2011, Eads called the auditor trying to get access to the Legacy Bank account since he was denied access because Brown and McKinley were the only people who had access.
According to the report, Jenkins told Eads to have Brown call Legacy Bank and ask for the records. Eads called Jenkins back and said “Brown had already provided him with a printout of what she sent to Legacy Bank.”
The auditor then asked to talk to Brown on the phone.
“Are you aware that a check cleared, in June, for $8,000 more than the listing you provided to Mr. Eads?” Jenkins asked.
Brown said she was unaware it was $8,000 more than what she deposited.
Jenkins asked why she was not aware of the $8,000 difference, to which Brown replied, “Mr. McKinley, posted the entry.”
After asking Brown about Christmas account deductions from her paycheck, Jenkins asked how she knew what to pay those contributing into the pooled account.
“Mr. McKinley takes care of that,” Brown replied.
Jenkins asked, “Mr. McKinley is no longer there, what are you going to pay everybody this Christmas?”
“I don’t know,” Brown said.
“Do you know this is potentially fraud?” Jenkins asked.
The report said Brown acted confused and did not understand. He then asked her how many years she had work for the district.
“Over 10 years,” Brown said.
“I find it hard to believe you would not notice, with your experience, that if you are doing payroll and purchase orders, that there have been several discrepancies between checks that have cleared the bank and the amounts on your payment register,” Jenkins said before asking if she was incompetent or responsible for the scam.
Brown said she was neither.
The auditor went on to cite other discrepancies about which Brown denied knowing.
“There appears to be hundreds of thousands of dollars of misappropriated money over the past five years,” Jenkins said. “Are you aware of that?”
Brown said she was not.
“How do you think the people in the community will feel when they hear that their hard earned tax dollars are being wasted in this scam?” Jenkins asked.
Brown did not respond and the phone was handed back to Eads.
Plenty of blame to go around
The auditor’s report states the school district used two local banks – Legacy Bank and BancFirst – for their banking needs and both were involved, indirectly, in enabling Brown to continue her crime over several years.
A payment register was sent to the bank for reconciliation.
“This payment register evidently was not printed out from the school software,” said the report
“If the school software had been used, the treasurer, or his assistant, would have noticed the huge differences between the direct deposits clearing the bank and the payment amount generated from the school software.”
During Jenkin’s audit while trying to obtain records from Legacy Bank, Jenkins and Eads requested assistance from the Oklahoma Attorney General’s Office through the issuance of a subpoena for records relating to the period being investigated.
“The information received from the subpoena was incomplete,” according to the report.
Once Eads had received the records, he visited the bank and requested the remaining 380 money orders.
After return trips to the bank and with information from the Stephens County District Attorney’s Office, all copies of money orders were obtained.
“It is my opinion,” Jenkins says, “that this information should have been presented by Legacy Bank to the Attorney General’s office as initially requested. Since the records were not fully disclosed to the AG’s office, I think the representatives of Legacy Bank need to explain why the records were incomplete.”
On Legacy Bank’s part, payments out were made in money orders and a problem should have been noted, the auditor observes.
“Due to the fact that 246 of the 423 money orders observed were not school related, I would think that somebody at the bank would have noticed the volume of money order transactions occurring from a school account and monitored this account for potential malfeasance (unlawful acts),” the report states.
The report also blames McKinley since he was in charge of oversights that would have allowed him to discover the improprieties sooner.
“The question remains to what extent was his involvement,” Jenkins says in the report, although, he cites finding no direct evidence of wrongdoing.